Deep Diving Into The Year-Long Grayscale Bitcoin Discount


The Grayscale Bitcoin Trust is arguably the most popular bitcoin trust in the world. The advent of the trust cemented the interest of institutional investors in the crypto space, bringing with it widespread popularity. However, the trust itself, despite being largely popular, has not lived up to expectations. It had started trading at a discount in 2021, and now, one year later, the trust continues to trade at a large discount.

The gap has gotten wider as the trust tries to recover from late 2020. In this report, we take a look at the performance of the Grayscale Bitcoin Trust over the past year and what the Digital Currency Group is doing to combat this ever-growing discount.

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Grayscale Bitcoin Trust Discounts

The Grayscale Bitcoin Trust had begun trading at a discount in 2021 following a large inflow of funds into the trust in 2020. It was a largely successful year for the trust which gave investors a way to directly bet on the digital asset without having to have any direct exposure to the cryptocurrency. These massive inflows, although a welcome development at that point, would prove to be detrimental to the trust in time.

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The following year, 2021, saw the Grayscale Bitcoin Trust begin trading at a discount. GBTC shares had effectively saturated the market at this point and with so many shares in the secondary market, there was selling pressure from investors. Most of these investors had initially intended to use play arbitrage with the shares by buying them in-kind and then selling the shares later at a premium. However, the selling pressure brought about by this market saturation had sustained through the year.

Grayscale bitcoin trust discount chart

GBTC trading at a 29% discount | Source: Arcane Research

Grayscale Bitcoin Trust has now consistently traded at a discount for one year this month. This discount is calculated with its share price relive to the NAV of the fund which has continued to drop.

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How GBTC Is Combating The Discount

Grayscale Bitcoin Trust has been trying to combat this widening discount. They recently announced that they are launching a $250 million share buyback. This would go towards soaking up some of the share supply that has saturated the market and has led to this growing discount.

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It is a plan that could definitely have an impact on the discount and cause the gap to narrow but this impact can end up being only short-lived. A true stop to the discounts would be the emergence of a premium in GBTC but competition remains fierce given that there have been a number of BTC ETFs and ETPs that have already launched, all of which are competing directly with GBTC. As such, a premium on GBTC shares remains unlikely.

Bitcoin price chart from TradingView.com

BTC drops to $41K | Source: BTCUSD on TradingView.com

Another route is that the Digital Currency Group has been trying to covert the trust into an ETF. Now, if this is successful, then Grayscale can definitely solve the discount issues once and for all. Turning the trust into an ETF would cause the shares to trade at NAV as a result of the active redemption program that would emerge. But even this remains an uphill battle.

Grayscale Bitcoin Trust is still trading at a 29% discount of share price compared to its NAV.

Featured image from SuperCryptoNews, chart from TradingView.com


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